Why Your SMB (Small Business) Needs Business Insurance
Whether you’re considering starting a small business, or perhaps you already have one, the importance of being properly insured cannot be understated.
No matter what the nature of your small business is, there are both foreseeable and unforeseeable liabilities you need to worry about. Having a well-crafted business insurance policy in place will protect you and the business you worked so hard to build from liabilities that could otherwise put you out business in the blink of an eye.
Types of SMB Insurance
When it comes to insurance policies for SMB’s, there are a number of types available, each of which serves to protect your business from a specific set of liabilities. Not all types will be applicable or necessary for your unique situation.
A good rule of thumb is to, at the very least, have a General Liability and Professional Liability policy in place, as well as Property Insurance if your business has a physical presence.
Let’s break down the different types of insurance available below so you can learn more about they are and why they are important:
- General Liability – This type of insurance covers bodily injury and property damage. If a customer has an accident in your store, this would fall under General Liability. In short, this policy would provide for both damages and defense (if necessary) in the case that your products/services or employees cause (or are alleged to have caused) property damage or bodily injury or harm to any other third party such as a client or customer.
- Professional Liability – Also known as E&O or Errors and Omissions insurance. If there is a claim against a service or product that you provided, these items would usually be covered under professional liability insurance. If an employee makes a clerical order or a service does not deliver on its promises, this policy would provide coverage for associated damages and defense.
- Property Insurance – Do you or your business own, lease or rent property? Does your business use office or other equipment such as computers, tools, or inventory of any kind? If so, you may want to consider purchasing a policy that would provide for protection in the event of vandalism, theft, fire, or other damages.
- Workers’ Compensation – As much as we try to keep our employees safe, accidents can happen. Worker’s Compensation pays for injuries or illnesses resulting from the job or that happen while at work, as well as wage replacement for time off while recovering.
- It may also cover benefits for an employee’s family in the unfortunate circumstance of an employee’s death. All states require some form of workers’ compensation insurance for any W2 employees and penalties for non-compliance can be stiff.
- Commercial Auto – Commercial auto insurance covers any accidents that happen when work cars or trucks are being driven, as well as injuries that may result from these accidents. Typically ideal for those businesses that have to transport products to the end client or that have on-site or offsite use of vehicles for various uses.
- Business Income – Business income insurance helps cover profit loss when a business has to shut down for a short period of time.
- Commercial Umbrella – this insurance covers claims that exceed the limits of other primary policies. It can act as a safety net against larger claims that exceed benefits or coverage provided for under other policies you hold.
- Commercial Flood – this protects your business from flood damage. Most insurance does not cover flood and water damage, so it is important to consider this insurance based on your location.
- Cyber Insurance – With the prevalence of cyber-attacks and data breaches on the rise, SMBs would be wise to look into this type of insurance to cover damages, legal fees, notification fees, and other liabilities as a result of a cyber attack or breach. Research has shown that over 40% of all cyber attacks were carried out on SMBs (small businesses) and that after a breach nearly 60% of all small businesses had to shut their doors within 6-months (largely due to liabilities and associated expenses).
- Directors and Officers Insurance – This type of insurance is meant to protect the officers and/or directors of a small business in the event that their direct or indirect actions result in the company losing money or causing other damages.
- Life Insurance While lesser thought of as a “small business insurance plan”, for those companies that rely heavily on one or more members (such as a single owner business or two member partnership), a life insurance policy can help keep the business afloat in the unfortunate case that a vital contributing member dies unexpectedly.
Business Owner Policies (BOP) – a catchall policy
Worth its own section due to the unique nature of this policy, a BOP allows a business owner to group together and combine different types of business insurance into one single policy.
These “bundled” policies often include coverage including:
- Business interruption
- Property insurance
- Vehicle coverage
- Liability insurance
- Crime insurance
- And others…
Bundling together policies under a BOP generally results in cost-savings for the business as compared to purchasing each policy individually. This also enables a business to manage all their different policies under one system, resulting in less paperwork and red tape.
The Advantages to Having Business Insurance
No matter the nature of your small business, it is important to have insurance. If you work in your home, or if you work in a brick-and-mortar location, insurance is still a necessity to protect you and your business from risks and liabilities.
Whether you provide consulting, repair cars, or style hair, there is insurance to cover potential situations and liabilities that may arise in your line of work that may require insurance.
- In order to sign commercial leases, most landlords require a certain amount of insurance. Property Insurance and General Liability are two commonly required policies.
- Unless you live in Texas, you are required to carry Workers’ Compensation if you have any employees under you. It is wise to carry insurance, anyway, but you must make sure to comply with state and federal law.
- Sometimes, a large client will require you to carry certain types of insurance, as well. This not only protects your business, but it also protects the client from issues that may arise during business dealings. It is important to show the client that you are willing to protect their interests.
- Insurance helps your business cover legal costs. You may think that your particular business does not run this risk, but you never know where a lawsuit may come from!
- Another great purpose of insurance is to make sure that you can make a living even when your business is not. Being able to have an income when your business is non-operational can provide a feeling of security during a time of turmoil, as well as keep employees compensated and bills paid.
- Maybe the reason that your business is not up and running is because there was a storm or natural disaster in the area. Insurance covers that, too! It can never be overstressed how important insurance coverage is in these situations. Do not wait for the disaster to happen to decide to invest in insurance!
- Data also needs to be protected. More companies are finding themselves victims of data breaches, and insurance such as Cyber Liability can cover this occurrence. That way, you can be transparent with any clients, restoring trust in your business.
- Insurance is also important for protecting business vehicles, and the employees that drive them. This can also be important in the case that an employee is irresponsible with a vehicle. Do not leave the life of your business in the hands of others!
- Perhaps the best part about being insured is that business insurance is tax-deductible. Not only are you making the smart choice to protect your business and your dream, but this investment can also be written off as a legitimate business expense against earnings on your taxes.
These are just a few reasons that small business insurance is important to have. With so many different types of insurance, it is important to review each one thoroughly and decide what works best for you. It may be wise to contact a broker to discuss your different options.
Protect the Business you Worked so Hard to Build
You have, in one way or another, been preparing for this business your entire your life. You found a passion, and you focused your efforts and turned vision into reality. Now, it is time to protect all that you have worked so hard to build. Don’t let one unfortunate circumstance bring your business to a grinding halt.
The temptation to dismiss buying insurance coverage or to only get bare minimum coverage can be strong, especially when first starting out and pinching every penny for dear life.
But realize that the alternative could be much worse. Planning ahead and providing a safety net in the case of an unforeseen liability can mean the difference between success and catastrophic failure.